A primer of political economy in catechism form: questions and answers

Front matter

Class Book Copyrights

CQKRIGHT DEPOSIT.

A PRIMER OF

Foreword

litical Science; American Political Science; The Constitution of the United States. Each volume contemplated will appear in the form of this initial one : the form of Catechism. The first volume following the present one will be on Socialism.

The expert in Political Economy will, the author anticipates, miss a treatise on Money which, however, could not conveniently be incorporated in the present volume. Nor did it appear advisable to present a treatise on Cooperative Un,- dertakings of workmen or the middle classes, be they cooperative undertakings of buying and selling for consumption (Consumers' Cooperative Stores), be they agricultural cooperative, or agricultural, industrial and small tradesmen's cooperative credit associations. These cooperative undertakings will be more aptly treated in the volume on Social Politics. For similar reasons a fuller treatise of Land, Land Speculation, and Land-Reform Movements were reserveb either for "Social Politics" or for "Socialism" in its various forms. The ethical aspects of the present organization of Distribution: Rent (from Land), Interest (from Capital), Profit (from tihe Undertaking), and Wage (from Labor) can, also, be treated more aptly and more fully in Social Politics, as it is the purpose of the author to do.

In presenting this first volume of the series to the public the author modestly hopes he is rendering the cause of education in Political-Economic thought and judgment a service. The first volume, being written, as it was, amid the stress and distraction of many other duties, will not escape the criticism either of the expert or the layman. The author will be grateful for criticism and for hints helpful toward publishing a better revised edition in the future. The proceeds of this volume are dedicated to the Re-Building Fund of the Josephinum.

The Author.

Introduction

THE SOCIAL SCIENCES — ECONOMICS.

Political Economy is a member of the large group of social sciences whose common material object is man as a social being. Man in his psychic aspects is the object of scientific study in a twofold regard: either as an individual, or as a social being. All sciences treating of the psychic nature of man in its social manifestations, constitute the social sciences. The principal sciences are: moral, law, jurisprudence, political science, philosophical social science, religion, anthropology, ethnology, statistics, international law.

Most natural processes have the quality of constancy, while the social processes are inconstant, dynamic, i.e., they continually change their character,intensity, and sequence, so as to be beyond calculation. Natural processes are computable, forward or 'backward, with unerring certainty, whereas social, psychic processes thwart every attempt at reducing them to any law. Hence the essential difference between the knowledge of facts of natural science and the knowledge of facts of social science. Processes in natural science reveal the agency of general laws in a manner as to make a single individual fact appear the legitimate and absolutely true representative of every fact within a given order or series. Once the relation of hydrogen and oxygen for the purpose of generating water is established,, the result will be valid for all other possible experiments in which the right relation is observed. The knowledge of the construction and vital processes of a (single organism in >a given

V

INTRODUCTION

species, is equivalent to the knowledge of all other possible organisms or processes of the same kind within that species.

Not so, however, in the realm of historical and social fact. Natural science has for its purpose to convert qualities into quantities, and to learn from the nature of a single individual organism or process the entire range of organisms or processes of the same order. Historical and social facts and processes cannot, like those of natural science, be measured, for they are not the necessary result of natural agencies, but the result of the free psychic nature of man. Human psyichic actions cannot be reduced to unities of natural energy. They are individual, psychic ; and the individual free human agent can never be the subject of scientific calculation as to his decisions. While, indeed, human nature is essentially the same in all men, the individual forces, tendencies and volitions preponderate over that which is universal and common in all men in a degree as toifoaffle computation.

The basis and foundation of all history and of all social phenomena is man as an (social) individual. The individual can never be actually calculated, measured as to his acts. Therefore there can be no so-called historical or social laws. Every historical fact, every social event, however great its similarity with other happenings of the same order, reveals individualistic traits constituting it a unique fact in all the realms of social life.

The substance and basis of all social action in the state, in economy, in law, in religion is man. But none of these phases and phenomena of the social life is in itself substance, but function. All social life is function, not substance, but function of a psychic nature, although it results in physical action. All human social action is outwardly

INTRODUCTION

transmitted by means of psychic force. Hence all social function coming within the scope of social sciences, respectively, is classed among the psychic mass^phenomena. Thus , state life, economic life, religious life, art, science, jurisprudene are psychic mass-phenomena.

These few observations reveal at once the essence of all the social sciences. They are sciences of human relations and of the exterior effect of these relations. What has been said of the preponderance of the individualistic forces and of the psychic incomputability of man also disproves the claims of the so-called Sociologists that there are laws of social evolution from which the development of society in the past can be deduced and which, they pretend, form a secure basis of calculation for the future. Likewise, the economic materialistic conception of history of classic Socialism is untenable in view of the psychic-indivi'- dualistic character of social fact.

What has been said of the psychic nature of all mass-phenomena applies with equal cogency to the world of economics. Political Economy is psychic function transmitted outwardly and projected upon external nature.

Science is the knowledge or apprehension of truth from its cause and established by certain proof or demonstration. The material object of Political Economy as a science is the economic life of people ; the formal object is the particular point of view from which the economic life of a people is, and must be considered. Now Political Economy is a science founded on the truths of the essentially immutable social-moral nature of man ; of certain divinely established elements of social life (social intercourse, government, authority, obedience, rights and duties, all moral elements indispensable to any social commonwealth), of certain absolutely necessary conditions of public and private material welfare.

INTRODUCTION

The formal object of Political Economy, therefore, deduced from the nature of man and of society (which is not atomistic) is: the science treating of the material welfare of a people, inasmuch as this welfare can and should be attained within the political organization, by means of a right and equitable organization of the economic affairs, of public and private economic activities and institutions.

This definition implies the t e 1 e o 1 o g i c a 1 character of the economic activity of individual and nation — the telos or end being the common welfare. It also emphasizes the solidarity of economic energies and actions which is deduced from the divinely established social nature of man. It, furthermore, recognizes the universal grant of right given to all men to share of the fruits of the earth and of their labor: "Increase and multiply, and fill the earth, and subdue it. And everything that moveth and liveth shall be meat for you" (Genesis) The economic conquest of the earth is the fulfilment of this grant and duty.

According to Adolph Wagner, all scientific knowledge must begin from the study of the human soat. Economic problems being inseparably connected with man, his instincts, desires, and ultimate destiny, are eminently psychological problems. Economics as a science, according to Wagner, is in one way psychology applied.

Therefore, in all economic matters man must always be considered superior to nature, superior to technics and absolutely superior to the economic principle, which may never be applied against man, (cheap child labor, low standard of living, unwholesome conditions, and lack of safety appliances in the factory, etc.) but only for him Man is always the subject, the end and center of Economy, endowed by God with the right to sovereignty over the irrational world. This is aptly called by Pesch the anthropocentric - teleological conception of Economics.

f nltttral l-roturow.

Chapter I

1. Mention ten social sciences at random.

Languages, history, law, jurisprudence, statistics, political science, social ethics, social mores, political economy, finance, social politics.

2. Which sciences are embraced in the term Social Science

as generally used in schools and in our school?

Political economy, science of population, statistics, finance, social politics, treatise on Socialism, Communism, Anarchism, political science in general and in particular, including a study of the American State and of our Constitution.

3. May the term Sociology be applied to these sciences?

By no means, for Sociology is as yet merely an attempt at a philosophy of association, or a theory of society in general and it is objectionable from a Catholic viewpoint no less than from a scientific one.

4. Give one of the possible definitions of Political Economy as one of the functions of social life?

Political Economy is the totality of activities and institutions directed to the purpose of providing for the material wants of a people. (Explain the terms "political" and "national" as applied to Economy.)

5. Give derivation of the word Economy?

From oikos and nomos, meaning the order, law or government of the house. (Thus in Gevnan: Volkswirtschaft, and - Hauswirt, Gastwirt, Landwirt, Miethswirt.)

2 FUNDAMENTAL NOTIONS.

6. Why is economic activity called purposive?

Because true economy is activity, i.e., not only activity for the purpose of providing, but of providing with prudence, providence and a calculation of cost and gain.

7. Is the homo oeconomicus a universal type, or is he the

product of history, environment and the pressure of

necessity?

The homo oeconomicus is the product of history and progressive civilization. He is not universally prevalent even today.

8. State the stages of economic development.

Home economy, village, territorial to state economy. Or, according to the criterion of exchange: domestic (autarchic) economy, barter, money, credit economy.

9. In what sense is Political Economy anarchic?

In sofar as not all economic activity is subject to law or regulation, and especially insofar as production for the market is regulated, if at all, only by speculation and the prudent policy of trusts and Kartells.

10. What are the characteristics of a truly human and pro-

gressive Economy?

That it be not mere wealth getting, but such an equipment of man with economic goods as will also promote his cultural and moral interests and provide for a state of disability and old age.

11. What is the economic principle?

It is the principle of the least cost combined with highest gain, the principle of the least effort with greatest result. The economic principle is merely the application of practical reason to the economic world.

Chapter II. Elementary Facts Of Political

Article I.

12. What is a want?

A want is the sensation of a defect, a void, a necessity coupled with the desire to remove the same. In the objective sense "want" denotes the commodity or good desired.

13. Give some classifications of wants and explain them.

Native and acquired wants ; material and immaterial; wants of existence and wants of luxury and culture ; true and imaginary ; immediate and remote.

14. What is the minimum of existence?

It is a dynamic category and varies with the stage and state of civilization, of rank and custom. It is never a starvation minimum.

15. What is the Standard of Life?

It is the minimum of existence which assures such a steady satisfaction of wants as custom, station in life, and the prevailing standard of culture has established or demands. It is not fixed but dynamic.

16. What is a commodity?

A commodity is a material thing or a service apt to satisfy a human want.

4 ELEMENTARY FACTS OF POLITICAL ECONOMY

17. What are free, what are economic commodities

(goods) ?

Free commodities are such as are unlimited in their abundance and are afforded gratis by Nature, economic goods are such as are the object of human care, sacrifice and economic effort and are limited in quantity.

18. Are moral and intellectual goods classed with economic goods?

No. .Neither religion, nor justice, morality, education, conscientiousness, etc. But they are valuable assets in the world of Economics.

19. What is Utility?

Utility is the aptness of a good to satisfy a want. The degree of utility is determined by the importance of a want, or by the urgency of the want. The utility of goods is the measure of their value.

20. What is (economic) value?

It is the importance we attach to commodities with reference to their aptness to satisfy our wants.

21. Is value contingent on our estimate?

No. It exists independently of our estimate or esteem'. Our subjective valuation is only the actual recognition of a commodity's intrinsic economic value.

22. What category is Value?

It is not an absolute category or quality of a thing belonging to the physical being of it 1 (like sd^e, weight, color, etc., of a body), but it is a teleological category, and ds always related to a purpose, an ideal. Thus a piece of art has value inasmuch as it responds to a certain artistic ideal, a quantity of coal has value because it corresponds to a certain purpose: of creating heat. The value of an economic commodity is the degree of its importance as an economic good.

23. State the relation and character of

Value in Use and Value in Exchange.

These two Values are not coordinated but subor-

ELEMENTARY FACTS OF POLITICAL ECONOMY. 5

dinated, for the value in exchange is determined by the value in use, i.e., by the degree of satisfaction a good will afford to the last one whom it reaches for consumption. For, exchange is not a purpose in itself, but its purpose is use and consumption.

24. What, then, is Value in Exchange?

It is the quantitative relation in which values in use of one kind are exchanged for values in use of another kind. As material goods with different properties and uses or utilities commodities differ, but their exchange values give them a common being, economic unity (one bushel of wheat for a quantity of cloth) . "The quantity of fungible value in use which is found in all socially recognized commodities is the substance of value in exchange", Knies.

25. What other element besides their usefulness determines

the exchange value of commodities?

The available and necessary supply.

26. How must all value be considered?

In its teleological character. (Opposed to this teleological theory of value is the genetic theory of Marx who makes labor the measure and criterion of economic value.)

27. What is Marginal Utility?

The utility of the last unit of the stock of a given commodity is the marginal utility of that commodity to that person.

28. What deductions do you derive from the doctrine of Marginal Utility?

1. The value of a commodity is determined by its Marginal Utility.

2. That not the abstract genus of wants (diamonds — bread) , but the concrete want whose satisfaction depends on a commodity determines the value thereof.

3. That the only true character of value is teleological.

4. That production must be subordinated to consumption, that is, to demand.

6 ELEMENTARY FACTS OF POLITICAL ECONOMY.

29. What is Production, Consumption, Yield, Income?

Production is the creation of the utilities by dint of human labor. — Consumption is the use of commodities. — Yield is the result of production in a given period. — Income is that part of the net yield which is available for immediate consumption ; income is that part of the yield which exceeds the cost of production.

30. What is the supreme purpose of economy according to

the economic principle?

Production at lowest cost with highest yield.

31. What is an Economic Unity?

An economic unity is a person or an organization whose will and wants determine the conduct of an economy (the individual, the family, a stock company, the State, etc.).

32. What is an economic organization?

It is a union of men into a permanent economic relationship which is founded on economic principles.

33. Give some forms of Economic Organizations.

The family, the manor, the slave plantation, the community household of a city or state, the entire political economy of a people, a stock company.

34. What is the character of our present economic exchange organization?

It is an organization of the market, of buyers and sellers, of supply and demand, dominated not by the interest of highest production but of highest gain or profit. It is the organization of self-interest, of Individualism.

STAGES AND DEVELOPMENT OF P.E.

Article II.

STAGES AND DEVELOPMENT, OF POLITICAL ECONOMY.

35. State the criteria or principles of the development of Political Economy.

1. The object or direction of production (hunting and fishing; 'the pastoral stage; agriculture and craft; agriculture craft and commerce. List).

2. The forms and conditions of exchange (domestic economy with barter ; money economy, credit economy. Hildebrand) .

3. The form of organization of the units of economy (exclusive home economy, autarchical ; city economy ; national economy. Buecher).

4. The progress of political organization (village, city, territorial, national ecconomy. Schmoller).

36. What may be said of these stages as to their accurate

delimitation?

They are historically not sharply distinct, they overlap, and the prior stage only gradually yields to the succeeding one. They represent, each in turn, a form which predominated at a given time.

Article III.

POLITICAL ECONOMY A SCIENCE.

37. What is the material, what the formal object of the science of Political Economy?

The material object is the economic life of a people, the formal object (i.e., the point of view of) Political Economy is the ordaining of the economic life of a people to the material welfare of the people as the social goal, corresponding with the social nature (and supernatural end) of man.

38. Offer a definition of Political Economy.

Political Economy is the doctrine or science treating of the material welfare of the people, inasmuch

8 STAGES AND DEVELOPMENT OF P-E.

as this welfare can and should be attained within the political organization, by dint of a just and legitimate organization of economic affairs, and of public and private institutions and activities.

39. Which four departments has Political Economy?

Descriptive Economy, History of Economy, Politics of Economy (tariff, revenue, banking, railroad, commercial and similar legislation), and the Theory of Economy.

40. What is the relation of Political Economy to Ethics?

Political Economy may never be at variance with the principles of morality. Moral is a negative guide to Political Economy and a criterion of the worth and tenableness of economic doctrine. Political Economy will never teach that which is physically impossible and should never teach what is morally indefensible. The very existence and steady growth of the social reform movement is evidence of the recognition of ethical postulates for Political Economy.

41. Mention important papal pronouncements setting forth

the ethical demands in Political Economy.

Ethical principles for economic and social relations between capital and labor in Quoad apostolici muneris 28 Dec, 1878; Rerum novarum 15 May, 1891:Graves de communi. 18 Jan., 1901. The doctrines embodied in these encylicals have been summarized in a Motu Proprio of Pius X, 18 Dec., 1903. addressed to the Christian Democracy of Italy. (II Pesch, pp. 441).

42. Describe the purpose and goal of the sound Political

Economy of a people in accordance with Christian, Principles.

That there be no too great differences of wealth, not "two nations" in a state (Disraeli), and

a) That even the lowest strata of laborers have an income insuring a respectable standard of living;

b) That there be intermediary classes by whom the touch and sympathy between the lower and upper classes are maintained; (Mitte-standspolitik, higher

STAGES AND DEVELOPMENT OF P.E. 9

classes of laborers, small merchants, craftsmen, business officials, farmers) ;

c) That it be possible for the lower to rise into a higher class, granted their fitness. There should be an economic selection and survival of the fittest, but not in the brutal Darwinistic sense of the classical Individualists.

Chapter III. Principal Economic Systems, Schools, And Theories

43. Mention the principal Economic Systems.

Mercantilism, Physiocratiam, Labor-Industrial-or Exchange Value System of Adam Smith, the National Economy System of List, Carey's agrarian adaptation of List's theory.

44. Which succession of facts led up to the Mercantile System?

Discovery of America, sea route to India (1498) by which trade line was shifted from Italy and Constantinople and South Germany to Spain and the countries of the West; silver and money, banking; the Spanish Jews migrating to Germany and England; the splendid example of wealth through commerce of Florence, Pisa, Venice, Genoa, Amain; the ambitions of dynasties ; the struggle of the city with the prince; the invention of gunpowder and the elimination of lesser nobility as a military feudal factor ; the rise of a civilian army of state officers ; the rise of royal treasuries, standing armies.

45. Sum up the philosophy and policies of the MercanA

tilist System.

Undue valuation of money as a national asset; balance of trade as a preeminent ambition ; export ; extension of home industry ; protective tariffs, canals, trade-roads, removal of export duties on finished products, advancement of industries by grant of privileges, exemption from taxes, invitation of foreign and prohibition of emigration of home artisans; co- 10

PRINCIPAL ECONOMIC SYSTEMS. 11

lonies; papulation policy: cheap foodstuffs, aid to agriculture, premiums to large families, indulgent views on illegitimacy, Navigation Acts.

46. Mention some of the foremost Mercantilist Statesmen.

Colbert, Elizabeth Cromwell, Louis XIV, Peter the Great, the Great Elector, Frederic the Great, Leopold I, Joseph II.

47. What was the chief error of the Mercantilists?

That money is wealth, while it is only a medium of exchange ; they forgot that the value of money is contingent on the possibilities of its function, exchange, which in its turn is profitable only When there •is an abundance of commodities to be exchanged. The Mercantilists did not sufficiently recognize the true economic wealth of a country — commodities, and transferred the economic philosophy of the economic individual (money is wealth) to the nation.

48. What do you know of the great Navigation Act of 1651?

It is the most comprehensive and most stringent of a number of navigation acts, was passed by Parliament under Cromwell and was designed and destined to stimulate the building of a great English merchant marine; it forbade the importation of goods from Asia, Africa, and America in other than English ships English-manned, and of goods from any port of Europe in other than English vessels. It forbade to foreign vessels the right to bring to England goods not produced in their countries, and the act was directed chiefly against Holland which then possessed the carrying trade of the world. It was reenacted in 1661 and repealed in 1849.

49. Describe the system of Physiocratism.

Physiocratism is a philosophy as well as an economic system and is based on the Law of Nature or Natural Right doctrines which gained ascendancy toward the close of the 17th. century. The gist of this philosophy is : man is by nature free, has a right to possess property, a right to pursue his own selfish interests ; the doctrine of free competition, emancipation of economic life from state control, freedom of economic career, of contract — laisser faire —

12 PRINCIPAL ECONOMIC SYSTEMS.

as a reaction against the overdrawn control of Mercantilism.

Economically, the Physiocrats under the leadership of their chief representative, Francois Quesnay, (1694-1744) taught that not industry but rawstuff production is the source of wealth; hence, an abolition of the Mercantilistic trade provisions and a return to a strict agricultural policy. The Physiocrats overestimated the mere bulk of rawstuff production, too regardless of the demand for same and of its uses. Emancipation of economics from Mercantilistic absolutism and from uneconomical hindrances (obsolete tariffs and other restrictions) is the great merit of the Physiocrats. Besides Quesnay, Turgot (French minister of finance in 1774), Mirabeau (father of the celebrated revolutionist), Joseph II, and others represent this school.

50. Describe the system of Adam Smith.

His is the Labor- Exchange Value -or Industrial System. It, too, is a revolt against Mercantilism. It amplifies Physiocratism. It is Individualistic. The great and distinctive feature of Smith's system is the clarity with which it developed the idea of e xchange value as a goal of national economics. Not the magnitude or quantity of production, but its exchange value is the source of national wealth. Not money, not balance of trade, not agriculture, but labor when applied to things that will have exchange value, is the object of an enlightened national economic policy. Hence division of labor within and between nations, each one of whom will most wisely produce that for which their country, abilities and aptitude best fit them. — Smith, however, overemphasized the principle of creating exchange value in that he did not take into account the demand which generates exchange value. He ignored the importance of the principle of marginal utility in the world of trade.

Adam Smith, born in Kirkaldy, Scotland, 1723, theological and philosophical student, professor of Logics at Glasgow University, traveller .and later cm writer on economical problems, his chief work "An

PRINCIPAL ECONOMIC SYSTEMS. 13

inquiry into the nature and causes of the wealth of nations" (1776), died in 1790— is the chief representative of the socalled "classical", and the liberal, individualistic school of economists. Smith has given the principle of free competition its clearest formulation and has championed its cause more than any economist before and most of economists after him. Smith believed in the existence of, or a universal tendency to, harmony in the world, also in the world of trade and business, and believed this harmony would unfold itself to perfection if each individual would be permitted full freedom of economic enterprise, free contract, etc., without interference by the state. He unwittingly and unintentionally became the theoretical author of all the misery, starvation, child and woman labor, that were consequent upon the recognition of free competition, and of the false principle of the equality of men in business; the inequality of the poor laborer — who had to "sell" his labor at any price in order not to starve — and the rich manufacturer became terribly apparent in the early era of industrial revolution in England, from 1776 - 1848. The doctrine of Smith on free competition was especially welcomed in industrial Manchester, England, whence also its name of Manchesterdiom (this term is more in vogue in German terminology than in English Economics).

The postulate of Smith that business be not interfered with by the state, already familiar to Quesnay and all the Physiocrats, was given expression to this day in the motto: laisser passer, laisser aller — to let pass and to let alone, a phrase used to this day, and often heard in the pleadings of capitalists and their lawyers before the congressional commitities sdrtftiimg on labor bills in Washington.

51 State the system cf Frederick List.

He might have entirely displaced the Smithian school of Economics if he had been as great a scholar as he was an agitator. The historical, realistic method of Economy has received through him a greater advancement than through any other single man in Europe. He represents a revolution of thought

14 PRINCIPAL ECONOMIC SYSTEMS.

and science from the Natural Rights school to the inductive and historical methods.

His doctrine is one of the truly national economics and insists on the development of the productive forces of a nation. These productive forces are the laws of the state, its institutions, science, art, religion, and nioral/intelJigtenc^, legal security and adove all : the harmonious cooperation of agriculture, industry and commerce in the nation.. No nation ought to buy in the cheapest markets, like the single merchant; nor do protective tariffs represent monopolies enriching only a few beneficiaries. Protective tariffs do raise the price of articles protected but they involve sacrifices only for the great boon of economic independence in the future. His protective policy is one leading to economic self-dependence of the nation (Erziehungszoelle). The loss sustained by the nation in exchange value through its protective policy is the indispensable capital necessary to the strengthening and rearing of a home industry. (List, born in Reutlingen, 1789 writer, lecturer, political agitator, 1824 in America, outlines policy for American and German railways; his principal work "Das nationale System der politischen Oekonomie" ; died by his own hand in 1864) .

52. State the system of Carey.

Carey is the foremost of earlier American economists. He adopts List's ideas on national economy, and he bases all exchange value produced in a nation on the productive forces of nature. A peculiarity of Carey's system is that he classes land with capital. (Carey, born 1793, son of Irish immigrant, died 1879).

Chapter IV. Conditions Of Development Of Political Economy Or

THE CAUSES AND SOURCES OF NATIONAL WEALTH.

53. State the categories of conditions and sources of national wealth and economic development.

They are natural, social, political, and personal. They are, severally and in particular, natural: climate, zone, flora and fauna, fertility, coast and surface formation, inland waterways, water-power (Canada's, Switzerland's, Norway's water power; the Mississippi, Amazon, Rhine, Danube, the Great Lakes, Panama Canal ; the insular or coast line positions of Great Britain, Japan, Phoenecia, Greece and the flourishing trading cities of mediaeval Italy: the feud over the Rhine, the Yalu, Fiume, Constantinople; the Mississippi a guaranty for the permanence of the American Union) ; coal, iron (the great industrial states' of the Germanic race: England, Germany, United States — Pennsylvania, Newcastle) :